Can these unlock hydro potential in the Balkans?

There is a giant battery in the south of Europe, and investors are taking interest in it. The hydroelectric potential of the Balkans, a region linking Italy, Europe’s third largest country by installed hydropower capacity, to Greece, is the focus of an upcoming international conference taking place in Montenegro from 15-17 November 2017.

Much of the energy infrastructure in the Balkan region was severely fragmented during the 1990s and the rebuilding process has been long and difficult – not least because of the necessity to repair trust in the region as well as power stations and transmission lines.

As highlighted in a recent report, the hydropower potential for the Western Balkans alone is estimated to be in the excess 8,400 MW, however, only some 2,800 MW have been developed to date. We take a look at some of the ongoing initiatives that could help develop sustainable hydropower infrastructure in the region.

Better interconnections can make projects more bankable
Olga Algayerova, a Slovak diplomat and the Executive Secretary of the United Nations Economic Commission for Europe (UNECE) recently observed at a forum in Astana that “energy security doesn’t mean self-sufficiency”.

Improved regional interconnections and power trading can transform power girds into low-carbon systems that can ensure energy security while providing clean energy to meet greenhouse gas emission reduction targets.

In addition, the aggregation of generation and demand over increased spatial areas helps to further integrate renewable energy resources. Expanding any power generation technology, but especially renewables, in small and isolated markets requires considerable back-up generation, which further increases costs for customers.

The re-establishment and synchronisation of local electricity markets in the Balkans can reduce costs, promote further development of all renewables, and enhance the security of energy supply by sharing risks and benefits. Hydropower with reservoir storage can play a vital role in such an interconnected system. With its ability to store water and provide power when it is needed, hydropower infrastructure can directly support the deployment of solar and wind resources, in addition to additional water services for irrigation, flood control and water supply.

Progress is well underway in the region. An initial impulse came in 2006, with the creation of the ‘Energy Community’, a treaty signed in 2006 between the European Commission and six Balkan countries, a ‘Roadmap for a regional electricity market for the Western Balkan 6’ was announced in 2016, outlining steps to develop an electricity market through spot trading and links between individual markets.

Other parallel initiatives have been supported by the European Union, which has a direct interest in the region: Croatia and Slovenia are members of the EU, and Albania, Serbia, and Montenegro are negotiating membership. As part of its pre-accession assistance, the European Commission, in partnership with other multi-lateral development banks, is supporting a number of connectivity projects, including the Trans-Balkan Electricity Corridor.

In February 2017, Italian electricity transmission system operator Terna announced it had completed the laying of the undersea section of the power transmission cable linking Montenegro, where EUR 740m is currently being invested in hydropower, to Italy. The entire corridor is expected to be operational in 2022.

Integrated river basin planning can make use of hydropower to provide sustainable water services
The creation of an integrated energy market will not, on its own, spur sustainable hydropower growth in the region. The majority of river basins in the Balkan region are transboundary and infrastructure development on transboundary rivers requires close coordination between all parties. This challenge is compounded by an already complex local decision-making structure. Recent discussions on hydropower development in Bosnia Herzegovina pointed to the difficulty arising from overlapping authorities on the national, cantonal, and municipal levels.

With increasing water stress and extreme weather events, how we manage freshwater resources will however be vital to promoting peaceful cooperation and sustainable development. Institutional stakeholders such as UNECE have called for a more integrated approach to hydropower development to facilitate regional investments, and mitigate better the impact on the food-water-transport-ecosystem nexus. The method and manner in which transboundary waters are managed affects the development within and beyond a single authority’s jurisdiction.

A transboundary river approach to the selection of dam sites promises higher rates of return on investments if dams are constructed in optimal locations. The region has, in recent years, suffered from massive floods, causing hundreds of millions of euros in damages. Hydropower infrastructure represent an important component in a suite of flood control measures. Thus, when planning is done at the river-basin level, benefits can be shared at all levels, and optimise the balance between power generation, water supply, environmental flows and flood control.

Following this call, the Western Balkans Investment Framework was tasked by the EU in 2016 to develop a ‘Regional Hydropower Master Plan’ to assess the ecological potential for hydropower development in individual river basins. Among the preliminary findings identified in a 2017 report were the missed opportunity linked to “shar[ed] hydropower potential”. The authors observed that transboundary projects remained as they were or at best “went worse by sizing down the best reservoir locations that could enable regulation of floods”, for example on the Drina and Drini Rivers, once again highlight the need for joint planning at the basin level.

Better preparation increases the bankability of projects
A number of the points above echo the current assessment made by many stakeholders in the sector that a better preparation of hydropower projects is vital, both to maximise the multiple non-power benefits that hydropower can offer but also to kick start greater private sector investment.

The private sector is often deterred by the high risk and cost associated with complex planning and project preparation, especially without knowing whether the project will eventually proceed. Few mechanisms exist to soften this risk but the recent World Hydropower Congress offered some suggestions in the form of project preparation facilities that would be tasked with developing project blueprints incorporating industry good practice. A public-private collaboration, the blueprints would be auctioned to the private sector with the necessary project approvals in place to significantly reduce the risk profile and therefore the cost of capital for developers.

In addition to this, participants at the congress stressed the need for regulatory frameworks which are conducive to foreign investment, otherwise financing will remain a stumbling block for many countries.

Better cooperation between players
Having already acknowledged the capacity of hydropower to provide renewable energy, decision-makers and stakeholders in the Balkans are now addressing related challenges to make more successful hydropower projects happen. Better hydro development is about maximising the outcomes of hydropower projects for communities, providing services beyond electricity generation.

This is a development that is not unique to the Balkans, and cooperation between players from within the region and outside, where similar experiences can be shared is key to accelerating the deployment of sustainable energy. IHA encourages this type of exchanges and will continue to support forums where dialogue between experts and practitioners and other stakeholders can happen.

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